Gloves off in Sky v Virgin battle

It’s happy birthday to Sky. Pay TV is 20 years old today (Thursday), and the station is celebrating with last week’s announcement of a 31% rise in operating profits. When the channel first started broadcasting on February 5, 1989, few would have imagined the transformation awaiting home entertainment and sport over the coming decades.

Sky announced last week that it is upping the ante in the pay TV market as it rolls out its high definition (HD) TV service. It is cutting the cost of its Sky Plus HD box by two-thirds to £49 as it tries to recruit more than 3 million HD customers by 2012. It will hire 600 new engineers and 400 call centre staff to spearhead the drive as it attempts to demonstrate the allure of superior HD television quality through standard TV sets.

Brian Sullivan, managing director of Sky’s customer group, explains exclusively to Marketing Week how the brand intends to weather the recession as it moves into its third decade.

He says: “No company and no individual is immune to what we are going through. If we are to cut back on our spend, the result is staying at home more and we want to be entertained.”

But 35% of respondents to a December 2008 YouGov survey claimed they would consider giving up their Sky subscription if a recession took hold. Can Sullivan really convince people that his service is a necessity for couch-bound consumers?

Sullivan argues that consumers will consider the Sky HD service to be value for money and are likely to add in more services to their TV packages rather than cutting back. “A month’s subscription is cheaper than taking a family out to the cinema for a night,” he claims.

Sky is not the only brand hoping to capitalise on people spending more time in their homes. Rival TV service Virgin Media, celebrating its own second birthday this week, is rolling out its ultra-fast broadband that will give a shot in the arm to on-demand television and could herald a new era of TV over internet.

New battle lines are being drawn over interactivity, with Virgin potentially offering superior two-way communication via the TV. Ashley Stockwell, managing director for brand and marketing at Virgin Media, is in fighting spirit, saying that his ultra-fast broadband is “defining and leading this new era of television”.

This fight is likely to escalate as both brands push the latest technology, with Virgin focusing on internet speed and Sky on HD. While Virgin has only about one-third of the numbers of customers compared to Sky, Stockwell says his company has just had its most successful year yet, bringing BBC iPlayer to its first television platform. It will soon launch the ITV Player that he believes will give Virgin an advantage over Sky in delivering on-demand television.

“The giant leaps we’ve achieved demonstrate how popular on-demand TV has become,” adds Stockwell. Despite Sky adding an internet connection to its Sky Plus HD box, he believes that his strategy will ultimately prove successful. He is also convinced that Virgin being one of the UK’s “most-loved brands” will help hold off the corporate might of BSkyB.

Sullivan disputes this, saying that Sky has an engaging brand image that will help it build customer numbers, although he admits that it might previously have been considered cold and clinical. “That was true four or five years ago, but existing customers disagree. They don’t just love the service, they are fond of the company,” he claims.

He suggests that one of the lessons that Sky has learned over its last 20 years is to put customers at the heart of its operations, on a par with Tesco, John Lewis and Amazon.

Sullivan enthuses: “We are one of the best in the world in focusing on the customer and what the customer wants and delivering customer service. Every decision we have come to since I’ve been here has been driven first and foremost by what is the best thing we can deliver for the customer.”

Despite Sullivan’s optimism, Sky faces a tricky task. It has a target of achieving 10 million subscribers by the end of 2010 and will need to recruit 800,000 new customers over the coming two years to achieve this. Its latest results show net growth of 171,000 customers in the last three months of last year, with just over half of them taking Sky Plus or Sky Plus HD.

Virgin has everything to gain as it is so far behind its bigger rival on customer numbers. It is potentially sitting on an advanced technology, though it has to ensure that its customer service is up to scratch and keep churn to a minimum.

Sky will be trying to stop recession-hit customers leaving for Virgin by focusing attention on its Sky Player online service throughout 2009. The Sky Player service is being syndicated not only to partner websites that will be able to embed it and tailor it to their own sites but it will also be extended to games consoles, such as the Sony PlayStation 3.

While Sky may be celebrating this anniversary with a profits rise, it is the next 20 years that may prove interesting as rivals such as Virgin and other on-demand services appear online. With 13 years history at Sky, Sullivan is sure he can evolve its operations to meet whatever the next two decades will bring. He concludes: “We take a very realistic but optimistic view of the opportunities in front of us.”